Patent reform is crucial or electronics industry will be consumed in self-destructive chaos

It's simple math. And it illustrates how broken the international patent registration and court system is when it comes to intellectual property.

I. The System is Broken

Microsoft Corp. (MSFT) recently revealed that tentative Google Inc. (GOOG) acquisition Motorola Mobility wanted $22.50 per device for a series of video codec patents. This request was clearly ridiculous -- as Microsoft states, the typical licensing rate for a collection of standards patents under fair, reasonable, and non-discriminatory (FRAND) terms is around $0.02 USD per device.

FRAND is actually a model system in that it is inherently an exemplar in the world of intellectual property. It represents fair compensation to innovators, yet opens key developments to the masses, allowing them to push the envelope.

The issue is that FRAND is on the verge of dying.

[Original Image: Cayusa/Flickr; modifications: Jason Mick/DailyTech]

The would-be murderer is patent litigation. Keep that $0.02 USD patent licensing figure in mind. Now imagine you patent a trivial user interface gesture, which is essentially some sort of variant on drag and drop. Suddenly you can ban a competitor's device which retails for $200.00 USD.

That's right -- based on recent court decisions, almost trivial non-FRAND patents [1][2][3] are being rewarded with rulings worth 10,000x or more the cost of traditional licensing fees.

This abysmal state of affairs not only encourages patent trolling, it offers a strong financial incentive to stop any FRAND related work. If your competitors go non-FRAND and your company works cooperatively under FRAND guidelines, your firm will almost certainly be dealt a series of crippling court rulings under the current patent atmosphere. Try explaining that to investors.

II. Some Suggestions for Improving the System

User interface patents, firmware patents, and their ilk certainly represent a philosophy of protecting software innovators. That's a noble goal. However, in the future, it would be good for the patent system to consider a couple of points:

Thus, while Apple's patent may be novel (assuming a lack of prior art), there are few feasible alternatives. The patent system should note this kind of situation and put a higher pressure to reach a fair licensing situation in this kind of case. You can't patent the laws of physics, so to speak, and even if you could, the least the system can do is to force you to license it.

2. The importance of a patent

Thus far Apple has secured short bans on Android products for relatively trivial features -- swipe to unlock, fast scrolling algorithms, and a "bounce" animation when performing drags or pinches.

In terms of the iPhone's net worth these represent maybe 1/500th or less of the total software innovation in the device. Thus it might be fair to charge collectively $1.00 USD per device for them, but seeking a ban or exorbitant fees from competitors who use similar effects/inputs is extremely punitive and unfair.

3. Eliminating repetition

The mobile industry is awash in a deluge of repatents -- companies taking personal computer innovations, putting a mobile spin on them and then filing for a patent. Apple's swipe to unlock is essential a touch screen version of the time immemorial drag-and-drop.

Motorola's forbidden swipe to unlock gesture [Image Source: YouTube]

If such repeats are allowed, the patents should at least be flagged. Again such a flag could be used as a basis to force a licensing settlement and/or reduce the maximum damages a company can seek to collect in a suit.

4. Force Companies to Reach Licensing Settlements

Barring a handful of patents where the IP describes essentially an entire product, there should be strict guidelines forcing companies to settle software IP disputes.

A reasonable place to start would be to charge x10 the going FRAND rate (e.g. $0.20 USD for licensing a portfolio of IP). In FRAND terms, this would not be fair and reasonable. But the approach would bring into line the risk-vs-reward equation of the FRAND-vs-non-FRAND filings, versus the current hyper-inflated value scenario which essentially tilts the value scale in the direction of non-FRAND so far that the balance bar breaks.

III. Don't Want to Fix the System? Prepare for a Dying Industry

As the industry stands right now, FRAND is on the verge of collapse. Google and its partners are fast learning that playing fair does not work. Their FRAND suits illustrate a willingness to play dirty. And that new perspective will likely soon manifest in a cessation of FRAND work.

This is a horrible state of affairs for the industry. By allowing injunctions that exceed FRAND payouts 10,000-fold, the global intellectual property sphere is revelling in the creation of an anti-competitive, anti-technology environment.

This system promises an ugly future in which mobile communications are slow (as it would be uneconomical to participate in FRAND communications standard development), there interfaces will be clunky (a company will be limited to a handful of UI elements for fear of infringement), and product quality will be decreased to offset an inevitable slew of licensing fees.

Prepare for the future of technology if the patent system is not reworked.
[Image Source: Museum of Natural History]

This is a system where nobody wins. And this is the system that will result if drastic action is not taken, right now.

Is Google/Motorola/Samsung playing dirty? Yes.
Is Microsoft milking the licensing system [1][2]? Yes.
Is Apple acting as an anticompetitive litigation abuser? Yes.

In a macroscopic sense, the problem is not these companies. The problem is the intellectual property system. This argument must not be lost amid our personal prejudices, lest the increasingly hyperlitigious atmosphere destroy the innovative devices we enjoy today, regardless of who makes them.

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I think it is fine to allow patents and protections for inventors. But I think all patent holders should all be subject to "fair and reasonable" terms for people who wish to license their ideas. The whole point of patents is to be a protected marketplace of ideas to sow innovation not as a tool to bludgen competitors out of a market. So if I am the inventor of the super soaker water pistol and patent the idea in its entirety an someone wished to make super soaker pistols using the design I think because the patent covers the entire design it might be fair to require a 5-10% fee on the value of each device. Now if we are talking about a single UI widget in a huge GUI OS which represents less than 1% of the interface which represents only of half of what makes a smartphone (assuming you divide the relationship 50/50 for the hardware and software) Then I would think the value should be 5-10% of at best 0.5% of the value of the device. (or about $0.1 per phone if it cost them $200 to make it.) And I think i am being overly generous here siteing the limits to which you could streach it.